Courtesy Salerno Law PC
Kimberly A. Salerno, Esq.
Clients we represent who are buying their first home typically have little experience with real estate. Attorneys can hold their hand through the entire purchase from contract review right through to the closing and explain each step to them along the way.
Commercial clients, on the other hand, are usually more sophisticated with the real estate world and often know exactly what they want. The attorney-client relationship, therefore, can vary greatly between the two types of clients.
Residential transactions do not vary dramatically, as they are generally single-family homes and the legal issues are generally the same. As compared with commercial transactions, depending upon the type of property being purchased, the transaction can be much more complicated because there are so many different factors to consider for the client.
Are you purchasing an office building, apartment building or multi-use with leases? Time should be taken to review the leases in detail and if necessary, negotiate changes to the leases with the seller and tenant. Depending upon your plans for the units, the sales contract should include language limiting the seller’s ability to engage in any new leases without the buyer’s approval.
Will you need zoning approval? Zoning is one of the most important considerations to make when purchasing commercial real estate as zoning is specific to each locality. The sales contract should address which party is responsible for obtaining zoning approval and should also include a contingency spelling out what will happen if the appropriate zoning cannot be obtained from the town.
This can be negotiated between the buyer’s attorney and seller’s attorney and will vary depending upon the circumstances. For example, if the seller is out of town and not familiar with the local zoning process it can be made a condition of the sale that they will reduce the sales price in exchange for the buyer, who is local, familiar with the process, and has a relationship with the zoning board, to obtain the necessary approval.
Do your environmental “due diligence”. It’s important to make sure there are no issues with the property that could compromise your business later on.
Was the land ever the site for a high-risk business such as a gas station or dry cleaner? If applying for financing, the lender will oftentimes require what is called a Phase I environmental report. This is a report prepared by an environmental consultant who prepares a rather long document based upon a site study (no drilling) to determine if there are any pollutants on the property.
If the seller has an environmental study and is willing to share it that is great, but the buyer should still conduct their own independent study. The person who conducted the seller’s study was hired and paid for by the seller, therefore, it is in the buyer’s best interests to have their own study performed.
Are there existing liens on the property or building code violations? A title search must absolutely be performed on the property being purchased.
The title report will set forth any items affecting the title—existing mortgages, easements, covenants, unpaid taxes.
For example, any building code violations need to be corrected by the seller and re-inspected by the town before closing. That is actually one of the easier title issues to address. The bottom line is that the seller is responsible for conveying clean and marketable title to the buyer at closing.
Commercial real estate transactions can be affected by many factors. The above items are just a few of the many issues to consider when buying commercial real estate. A successful purchase involves the teamwork of an experienced attorney, commercial broker, surveyor, and engineer, to name a few.
Salerno is the principal in Salerno Law PC in Ballston Spa.